Hero Motors

Hero Motors

By Geetanjali Kedia
about 19 hours ago

IPO Size: Rs. 1,000 cr

  • Fresh Issue of Rs. 600 cr (16% dilution) for (i) capex Rs. 200 cr (ii) repaying Rs. 190 cr of Rs. 415 cr gross debt (iii) unidentified acquisitions
  • Offer for Sale (OFS) of Rs. 400 cr, by promoter (86% to drop to 62%)

Price band: Rs. 79-84 per share

M cap: Rs. 3,815 cr (IPO is 26% of m cap)

IPO Date: Wed 16th Sep to Fri 18th Sep 2026, Listing Wed 23rd Sep 2026

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

 

Fully Integrated Powertrain Systems Provider

Hero Motors (not to be confused with two-wheeler maker Hero MotoCorp) is a Noida, Uttar Pradesh headquartered auto component designer and manufacturer of highly engineered powertrain solutions for auto original equipment manufacturers (OEMs). 60% of company’s Rs. 1,188 cr topline comes from India (35% from Hero Group), and balance via exports, mainly to Europe. Company spends 7-7.5% of topline on R&D annually. But over 75% of revenue comes from non-EV business, which is has low growth outlook.   

 

Low Growth

In the last 4 years, revenue has grown at only 8% CAGR. Half of company’s revenue comes from low-margin alloys and metallics business segment, topline for which has been stagnant at Rs. 550 cr. Infact, FY26 operating profit for alloys and metallics segment resulted in a loss of Rs. 16 cr or -3% segmental margin, as against 7% operating profit margin in FY22. This is the biggest drag to company’s profitability.

 

And Low Margin

While gross margins are as high as ~42%, EBITDA is just 10%, with net margin even lower at mere 3.5% or Rs. 41 cr for FY26. Of this, nearly half of the profits were other income such as forex gain and interest income. As of 31.3.26, company’s equity is quite high at Rs. 383 cr (face value Rs. 10 each) leading to an EPS of Rs. 1.14.

On net worth of Rs. 833 cr, company’s profitability is low, with RoE being in single digit, at 8.6% for FY26. Even post IPO, as debt halves, net debt to EBITDA of 1.4x is on the higher side.

 

Expensive Pricing

M Cap of Rs. 3,815 cr and Enterprise Value (EV) of Rs. 3,996 cr lead to a current year PE multiple of 59x, on an optimistic FY27E estimated EPS of Rs.1.4. This is unjustified for low topline growth, sub-4% net margin, other income being a significant profit driver and single digit RoE. Powertrain making peers CIE, Endurance and Varroc are ruling at much lower PEs of 35-40x for higher growth and margins making Hero Motors and expensive nano cap stock even on peer comparison.